Stepping up Productivity

19 February 2013 Reporter

Keeping your property managers motivated when landlords are on their back and a problem tenant won’t pay rent can be challenging. Residential Property Manager spoke to the experts about which incentives work best for property managers

Sales agents have commissions, bartenders work for their tips, some companies use reward points – even airlines promote frequent flyer points – but what pushes your property managers to reach their full potential?

Sure, you may think a smile and a pat on the back will keep your property managers working to their maximum capacity, but in reality sometimes an incentive program will work better for you, your employee and, just as important, your bottom line.

According to Darren Hunter, director with the Leading Property Managers of Australia (LPMA), those who aren’t incentivising their property managers will fast lose their best employees to those who are willing to reward performance.

“Twenty years ago, property managers were just paid a salary and were happy with this. However, in a market where good property managers are now very scarce, competent property managers want to be paid well for their skills, and they want this to be based on their performance,” he says.

“It is no secret that property management is one of the most challenging jobs out there, and a good property manager knows this.

“Agencies that choose not to reward on performance will simply lose good staff, and find it near impossible to attract good talent.”

Karl Secondis, director at One Real Estate in Darwin, agrees. Mr Secondis believes his incentive programs play a paramount role in keeping his staff.

“In our small market, poaching happens a lot,” he explains. “So we know it is important for our incentive program to offer our workers monetary bonuses, as well as something other offices won’t offer them, like flexibility and the feeling of being looked after.”

Glen Coutinho, director at RT Edgar Boroondara in Victoria, believes the advantages of an incentive arrangement are clear and simple – it encourages traditionally systemised workers to think like a salesperson.

“Their first priority is looking after what they’ve already got, which is great. [This is] what we want to do as a business, but we also want to grow.

“Incentives give a property manager a reason to think in a more sales-orientated manner.”

PROS AND CONSAccording to the experts Residential Property Manager spoke to, if incentive programs are not managed correctly, including having an outline of strict expectations, there could be some unforeseen disadvantages.

Sandra Larkin, general manager of property management at Queensland-based Place Estate Agents, believes incentives should not encourage the quickest result but spur on exemplary performance.

“There can be disadvantages, especially with BDMs, as you need to watch the balance of motivation to earn money versus bringing on quality properties,” she says.

Mr Secondis, who started his incentive program at the beginning of this year, offers some advice to those thinking about crafting a program to suit their office.

“My advice is think very carefully about it,” he says. “It’s the type of thing that you need to consider, write down and review in two weeks’ time. You should talk about it with your business partners, mentors and, most importantly, speak to your property managers.

“We chewed through the idea for three months because it could have opened a can of worms and create an ‘I deserve’ expectation,” he continues.

“Once you have started an incentive program, it is hard to take it away from your staff as they feel like you are taking away their pay.

“Be certain you have the right program for you, your staff and your business before launching it.”

GIVING YOUR TEAM INCENTIVESIn a survey conducted in 2008 by the Real Estate Employers’ Federation South Australia (now SA/NT) about remuneration, almost 80 per cent of residential property managers surveyed were receiving commission, bonuses or incentives in some form or another.

Four years on and Don Tepper, CEO of the Real Estate Employers’ Federation of SA/NT (REEF), believes this information still rings true.

“The reason a property manager was not receiving commission, bonuses or incentives was not explored in the survey,” he says, “but empirical evidence suggests it is because of such reasons as a higher salary, the property manager’s preference, the employee being trained or receiving other perks – like a fully maintained company car that they can also have for private use.”

As shown in the 2008 survey, incentives vary in nature dramatically (see ‘Incentives come in all shapes and prizes’). Commission akin to half the letting fee or the equivalent of the first week’s rent showed up to be the most frequent type of commission in the survey.

“That said, our experts employ a range of different incentive-based schemes to keep their property managers motivated,” he says.

“The group operates an Elite Property Management BDO program where the best of the best are recognised by the group,” she explains. “We also measure, publicise and celebrate the net growth of the individual offices’ rent rolls each month. This engenders good natured rivalry between property management teams.

“Winning is a great motivator,” she continues.

“The group yearly awards in property management are also hotly contested and motivate many of the teams to great heights.”

In contrast, Ms Larkin from Place Estate Agents motivates her employees when they met key performance indicators (KPIs) and also uses extra incentives to reward a team member of the month.

“I reward a property management staff member, including administration staff, as the team member of the month and give out prizes, which are usually massage vouchers, beauty therapy vouchers, a training session, sports event tickets or even French champagne,” she says.

“We benefit from this as it drives growth in the business and encourages property management excellence.”Mr Coutinho says he tried prizes and gifts as incentives, but they weren’t as successful or popular with his property managers as his current program, which is based on the income generated.

“In the past we tried different things, but it was too hard to manage – you never know how much you should offer,” he explains.

“If you list a house and it’s a big one, then the incentive might be $2,000. A dinner for two is not going to cut it.”

Now Mr Coutinho offers his staff between one to two weeks’ rent for each property they lease and are encouraged with a 10 per cent referral fee if they refer a property to a sales agent.

“Everyone is on the same incentive program and it crosses over both sides of the business,” he says.

Mr Secondis is thinking outside the box with his incentive programs, which he says gives his property managers a chance to earn an extra $8,000 per annum.

His arrears bonus is broken into two parts. The first is a challenge between his property managers to be the first to have their arrears to zero. If they achieve this, they are taken out for lunch. The second is a jackpot. Each month Mr Secondis puts $100 in the ‘kitty’ to motivate his property managers to keep their arrears to zero for five straight working days. If they can do that, they win the total amount of the jackpot.

“We have an open-plan office and we are always hearing that the girls are on each other’s tail to win,” he says.

“It means they have got smarter with tenants, educating them about what is expected and when.

“We have found it certainly motivates the property managers to be proactive.”

Mr Secondis also uses a monthly performance bonus that is centered around a point system.

“Our property managers can achieve points with unsolicited testimonials and keeping their filing up to date, and they can lose points for complaints,” he explains.

“We review this weekly to make sure they are on track and offering excellent service to our clients.”

Mark Hurley, director of Starr Partners Parramatta, admits he inherited a portion of his incentive schemes from another company. Yet he has since altered them to suit his business.

“We pay our letting clerks $20 to $30 per property that they let,” he says, “so we provide a young employee a chance to earn on top of their income. If they are letting 15 to 20 properties a month, that could earn them an extra $300 to $600 a month income.

“It makes them keen to not just show the property but to go to the next step.”

For property managers, Mr Hurley believes they offer a very generous incentive scheme.

“We create a monthly benchmark figure that is determined based on our annual income divided by 12 months,” he explains. “Anything our property managers achieve over that benchmark, we give them a percentage back.

“We effectively pay them a bonus, as long as the business is growing.”

REAP THE RESULTSIncentive-based schemes must be intrinsic to the employee in order to reap the best results, says Mr Tepper.

“If an employee’s commission/bonus/incentive arrangement is not intrinsic to the employee, that is, no self-interest is involved, then the arrangement will simply become a short-term motivator and lose its incentive value to the employee,” he says.

“An offbeat example of a self-interest motivator would be an all-paid trip to Africa, because the employee desperately wants to help the people there to dig wells for fresh water.”

According to Mr Tepper, the best way to determine what motivates your workers is to simply ask.

“It is probably best for a principal not to dream up an incentive arrangement by themselves, but to have purposeful discussions with the individual property manager,” he says.

An employee, who has suggested an incentive arrangement that has been agreed upon, is far more likely to be motivated to achieve the desired result.

Mr Secondis believes the best incentives are the smaller things. Throughout the year the One Real Estate office experiences many perks, including 20 minutes with a massage therapist, flowers delivered on an employee’s work anniversary, weekly lunches every Wednesday, their birthday off and five weeks of holiday after an employee has been with the company for one year, as well as the best tools – iPhones and iPads – for each employee.

“Most of these things don’t have a huge monetary cost to our business, but they can have a huge impact on how the employee feels about coming to work,” he explains.

“And it is these smaller things that get the best reaction.”

Ms Keays agrees, as she believes money isn’t always the only driver to success.

“This may sound rather trite, but the incentives that work best are always team-based ones and are seldom to do with money,” she says.

“They range from meals together to trips away and departmental attendance at conferences.

“Financial incentives tend to be more personal and viewed as part of the employee’s income.”

BUDGETING FOR INCENTIVESBudgeting for incentives is tricky as every business is different. According to Mr Hunter, it is about finding a balance between what your property managers are worth to you and your business, and what you can afford.

“We see, commonly, five to 10 per cent of their salary paid on top as an incentive,” he says. “But at the end of the day, you need to look at their base salary, look at the work they do, look at your total revenue taking into account your overheads and net profit and then think, ‘What are my property managers worth, what would they be happy with, and what would the company be happy to do?’ and find your balance.”

Ms Larkin agrees it is difficult to set an industry standard.

“That is a hard question because it depends on the size of the company and the budget you have,” she says.

“Every company is different and has a different focus in their business. In my department, I budget 10 per cent of my wages expenses towards bonuses and incentives to promote excellent service.”

Mr Hurley says his budget changes all the time.

“We don’t really have a budget because our incentive is based on income generated by the property manager,” he says.

“We are not too concerned about the outlay because our rent roll is growing. The more the property manager generates for our business, the more they can earn.”

ASK THE EXPERTJoel Barbutomanaging director at Gough Recruitment

WHAT ARE THE RIGHT WAYS TO INCENTIVISE YOUR EMPLOYEES, AND ARE THERE ANY WRONG WAYS?IT ALL depends on the structure of your business. If you have a pod structure with a senior property manager and support, which is fairly common, the property managers are not likely to be bringing in new business.

So their incentives might be based on being able to refer a friend, or being able to build stronger and more authentic relationships with their landlords to uncover other properties. Some landlords might have another property, they might have 10, and they might be listed with another agent. So being able to uncover that and move them across is good.

Incentives are varied across the industry, and I put them into two categories. If you’re a younger agency and you’re trying to aggressively build your rent roll, you might want to offer more lucrative structures, like half a week’s letting fee, or a full week’s letting fee, as you really want that property manager to be quite aggressive in the market to build that rent roll. Once it’s at a sustainable level, it would revert back to a percentage of the gross income over the year.

As for the wrong ways to incentivise workers, this can happen when incentives are geared towards numbers with no quality control. It could be the house down the street that needs constant daily attention and is costing the business a lot of money because it was signed at a very low fee just to get it across. If you’ve got your property manager spending 80 per cent of their time on the management, it’s not worth it.

DO INCENTIVE ARRANGEMENTS WORK FOR BOTH PARTIES? IS A PROPERTY MANAGER MORE ENGAGED BECAUSE THEY ARE RECEIVING AN INCENTIVE?A RESIDENTIAL property manager knows that if they perform their job satisfactorily, their base salary, super and allowances are regularly paid and, generally, there is an expectation from them for an annual salary review.

An expected annual increase in salary, as research regularly shows, is not a motivator for an employee to do more or better work – it’s an expectation of what they are worth for their job, regardless of performance.

An incentive arrangement for a property manager probably produces a different expectation than the expectation they have towards their salary. This will be particularly true if the incentive arrangement is not linked to performance management. That is, if the incentive is not achieved, the property manager will not be performance managed – they simply will not receive their commission, bonus, incentive arrangement. Therefore, when a principal consults with a property manager over key performance indicators (KPIs) it should be agreed, with absolute clarity to both parties, what KPIs are attached to the salary only and not to an incentive arrangement.

If extra KPIs are achieved over and above the salary KPIs, an incentive will be given. For example, as part of a property manager’s normal job and salary they may be expected to achieve an average net increase (‘no fault’ losses are not counted to calculate the net) of one property per month, and if this is not achieved they may be performance managed; but if they achieve a net increase of two or more properties a month, they receive an incentive on the two or more properties. In this way, the incentive arrangement will work as more of a long-term motivator because self-interest is involved. The property manager well understands that if the net increase of two or more properties does not eventuate, nothing will happen. But if it does happen, they will receive an incentive.

INCENTIVES COME IN ALL SHAPES AND PRIZESThe following are examples of various incentive arrangements from the 2008 Real Estate Employers’ Federation SA remuneration survey

01.Half the letting fee for new properties introduced02.Six-monthly bonus of five per cent03.Annual conference airfare and accommodation paid04.Net growth in number of properties managed set annually up to $10,00005.One week’s rent for personal introductions06.Commission if buyer introduced from landlords07.5.35 per cent of property revenue paid quarterly08.$70 if 7.7 per cent fee; $80 if 8.8 per cent fee; $90 if 9.9. per cent fee09.$5,000 per annum10.New listings: up to $249pw = $100; $249 to $299 = $130; $300+ = $16011.Graduated incentive commences at 30 per cent of increase12.$100 for new rental13.Bonus for target, plus one week’s rent for new rental14.50 per cent of letting fee, plus bonus if target is met15.Bonus if over budget16.Personal listing $200; company listing $100; $150 for sales referral, plus a week’s rent for new managements17.Profit share18.$100 for a new listing, plus a salary increase if net increase of 20 per cent19.Yearly bonus20.Fully-maintained company car21.Fully-maintained company car, plus $70 for new listings22.$3,000 per year for 25-plus new managements; 30 per cent of new letting fees23.40 per cent of the increase for rent paid